Rail Freight Gets Clocked from all Sides in this Economy

This hasn’t happened since the Financial Crisis.

Total US freight rail traffic, as measured in carloads and intermodal units, fell 6.1% in the week ended October 8, from the same week last year, the Association of American Railroads reported today. It was down 10% from the same week two years ago!

Both of its components were down: Carloads – transporting oil, coal, grains, chemicals, and the like – fell 5.9% in the week, to 264,165 loads. Intermodal (containers and trailers), which accounts for about 46% of total traffic, fell 6.4% from a year ago, and 6.5% from two years ago.

This comes after an already dreary September, when total freight traffic was down 4.8% from September last year, with carloads down 5.4% , and intermodal down 4.2%.

“Rail traffic in September was more of what we have come to expect this year: big declines in energy related products, continued weakness in intermodal and most other export markets, but with some strength in grain,” the AAR report said. “The fact is, in many of their markets, railroads are facing significant market uncertainties.”

These “significant market uncertainties” – actually “certainties” would be a better word – come in several packages:

The decline in car loads is mostly due to two big factors:

  1. The ongoing collapse of coal shipments. Power generators have been switching to natural gas and renewables, at the expense of coal. This trend started years ago when the price of natural gas collapsed and when power generators began building large utility-scale renewables facilities, particularly wind, in Texas, California, and other states.
  2. The total collapse of crude oil shipments. This started two years ago, when the oil bust began to bite. In the latest week, shipments of petroleum and petroleum products were down nearly 70% from the same week two years ago!

A more recent addition to the freight rail problem is the decline in intermodal traffic.

Intermodal had been the big hope for railroads. As oil and coal shipments were collapsing, intermodal was growing, and the hope was that it would be able to compensate for the decline in coal and oil shipments. But that hope fell apart in Q4 2015, when intermodal booked its first year-over-year decline (-9%) since the Financial Crisis.

This was followed by an uptick (+1%) in Q1 and by two back-to-back year-over-year declines in Q2 and Q3 (about 5% each).

It’s not just a blip. Year-to-date, US railroads reported a total volume decline of 6.9% from the same period last year, with car loads down 10.4% and intermodal units down 3.3%. Coal shipments, by far the largest category, accounting for about 30% of total carloads, plunged 25%. Petroleum and petroleum products shipments fell 22%, forest products 7.8%….

The only bright spots in terms of carloads, year-to-date: grains (+5.6%), motor vehicles (+2.7%), chemicals (+1.7%), and “other,” the smallest category (+16.7%).

But one of these bright spots, motor vehicles, which accounts for over 7% of total carloads, is turning into the next brake shoe to drop.

Auto sales hit a record in 2015, after cheap-debt-fueled increases year after year. But in September, unit sales fell from a year ago. Year-to-date, sales are up merely 0.5%, on strength earlier this year. Inventories at dealer lots are growing. Manufacturers are piling on incentives to move the iron. Ford will close its Mustang plant for a week to deal with oversupply. The industry has been talking about a looming “car recession” for months. And unless a miracle happens, auto shipments are going to follow auto sales.

So the decline in intermodal traffic is very unwelcome. Intermodal faces a combination of different challenges: Shippers seeing less than stellar demand in the US and overseas; and fierce competition from the trucking industry.

Diesel prices have fallen over the past two years. Spot rates that trucking companies charge have dropped too. And shippers have come to see a price advantage in shipping their merchandise by truck rather than by rail. In that vein, the AAR estimates that truck freight has increased 3.5% this year through August.

To deal with these “significant market uncertainties,” as the AAR put it, railroads have been cutting costs. They’re laying off people. They’re slashing investments. They’re working on efficiencies, such as increasing train speeds, given the reduced traffic (particularly of slower-moving oil trains).

And they’re idling engines on various tracks around the country. Sightings of these long lines of hundreds of engines have become more common. In May, I reported on the majestic sight of 292 Union Pacific engines parked in the Arizona desert [Freight Rail Traffic Plunges: Haunting Pictures of Transportation Recession].

Investors, however, have piled into railroad stocks since the February low – along with just about everything else out there – hoping the glory days are back, or hoping that QE4 will commence soon, or hoping at least for a nudge from the Fed, or whatever. For example, Union Pacific shares have jumped 42% since February, but they’re still down nearly 20% from the February 2015 high.

As an industry, North American Class 1 railroads – which the AAR defines as line haul freight railroads with revenues of over $476 million – are much smaller than trucking. According to the AAR, these railroads employed about 169,000 well-paid people in 2015, compared to about 1.8 million long-haul truckers (not counting other employees at trucking companies). And for those who want to know, there are over 26,000 locomotives in service at Class 1 railroads, including a couple of thousand or so parked on sidings around the US.

But even trucking companies are cutting costs and slashing investments as the transportation recession exacts its pound of flesh. Read…  Heavy Truck Orders Plunge, Worst September since 2009

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  48 comments for “Rail Freight Gets Clocked from all Sides in this Economy

  1. TheDona says:

    Ship builders are also taking a big hit: Daewoo Shipbuilding (Worlds second largest ship builder), Hyundai Heavy Industries Co. and Samsung Heavy Industries Co., the world’s three biggest shipyards based in South Korea, are all reducing capacity, cutting jobs and selling assets amid a plunge in orders for offshore drilling units and ships. The shipyards posted losses last year and are struggling with mounting debt after a slide in oil prices prompted oil companies to slash spending and cancel or postpone projects.


    • Wolf Richter says:

      This industry has essentially collapsed, particularly in China and Korea. I last wrote about this in May, and it has gotten a lot worse since. Overcapacity is a terrible thing…


    • MC says:

      And in the meantime in China the insanity proceeds as planned: the four major Chinese commercial shipyards (Quingdao Beihai, Jiangsu CMHI, Yangzijiang and Shianghai Waigaoquiao) have confirmed they have 30 Valemax bulk carriers on order and construction has already started, with the first ships to be delivered in 2018. They have all been ordered by Chinese customers, starting from COSCO.
      The sanity of building thirty 400,000 tons bulk carriers in a world that’s already drowning in bulk carrying capacity (mining company Vale was the prime driver behind this, as the class name says) is questionable to say the least, until one remembers COSCO is involved.
      At that point we may as well check into Bedlam.

      • d says:

        The chinese state through cosoco intends to control all shipping in asia if not the world, and definitely all shipping in and out of china.

        He who controls teh ships controls the trade.

        The shipping overcapacity glut will continue until there is a winner, in the trade and shipping war china is waging on the rest of the planet.

        The is no other tenable explanation for the continuance of that state funded, shipbuilding program.

        COSCO is not even paying for the ships, they come on interest free, no deposit, no payments without profits, State credit plans.

  2. Bookdoc says:

    What I can’t understand is that I see reports of layoffs and staff cutting but the number of unemployment claims doesn’t seem to ever go up. Not just in the USA either. Is it possible these figures are “massaged”?

    • Tom Welsh says:

      The unemployment statistics are fixed seven ways from Sunday. The main swindle is that anyone who has been unemployed for a certain time ceases to be counted! According to John Williams, whose shadowstats Web site analyzes phony government statistics, true unemployment in the USA as of June 2016 was 23%. (See link below).

      The government figure of 5% (or whatever) basically excludes anyone who is really unemployed, in the sense that he can’t get a job no matter how hard he tries. The government “unemployed” would more accurately be called “between jobs”.


    • Kasadour says:

      It could be that some newly laid off workers have exhausted their benefits with previous claims. Also, if they had a previous claim and are eligible for an extension, they aren’t required to open a new claim, rather they just re-open an existing claim and are not counted among new claims.

      Correct me if I am wrong by I believe there is only one federal extension available now (additional 13 weeks after an initial 13 weeks is exhausted for a total of 26) it used to be 50 weeks. So, workers are exhausting benefits much sooner and aren’t eligible anymore.

  3. nick kelly says:

    As scary as this is it was the fall in truck traffic that really convinced me that
    the recession has begun.
    You can’t blame that on coal, grain, oil etc., because they aren’t trucked ( except grain locally, but not to shipping port)
    Trucks are just…stuff. Potato chips, beer..did I forget something?

    A very broad measure of the economy’s health- similar to rail in 1929.

  4. Curious Cat says:

    And yet the Fed is telegraphing a December rate increase based on continued improved employment measures. Clearly they have access to the same information you do, Wolf. So I guess I’m left to conclude their publicized information is just window dressing… trying to talk the economy into improving, while protecting the big banks and the banks’ bosses.

    And seemingly the legislators, news media and general public are not educated enough to raise any objections. Makes my brain hurt. Talk about a slow motion train wreck.

    • Chicken says:

      Good news everyone, right on Que for record corporate debt overhang.

    • Jerry says:

      They have to increase the rate because pension funds are beginning to blow up already. Pension fund models were based on about 6 to 8% interest rate and they have not been able to get that for a decade.

      • d says:

        Further rates have been to low, for to long, exacerbating various problems.

        The market has to be weaned from excessively low rates, slowly.

        25 BP per annum is probably a little to slow, which is where we are at if the raise 25 BP in December (I would not expect more than 25 BP).

        Many are against the US raising rates, if the market cant handle 25 BP PA, until the rate hits at least 3%, the Global and US economy is way worse than anybody dares to admit.

        Anoter Us rate rise would also be another shot, against the criminal insanity, of the mafiosi, at the ECB. Whose action effect the entire global system just as Janets do.

        When the US first eased the ECB were NO NO NO, now the ECB is secretly buying security’s, everybody knows are toilet paper, and is talking about buying junk stock’s, again in secret..

    • Marty says:

      Not any more:

      The Federal Reserve can be “gentle” in removing monetary stimulus since U.S. inflation remains low and the economic expansion could last five or more years, one of the most influential Fed policymakers said on Wednesday.

      “We’re at a point where the economic expansion has plenty of room to run,” said New York Fed President William Dudley, echoing Fed Chair Janet Yellen’s message last month after the central bank decided to leave interest rates unchanged at near a record low of 0.25 – 0.5 percent.


    • Wolf Richter says:

      Economically speaking, it makes no difference if the Fed raises interest rates from next to nothing by almost nothing to nearly nothing.

      It’s all about the markets. The Fed creates asset bubbles (including in bonds) and does not want to prick them. Warren Buffett and his empire might get hurt, omg!

      You’re right: whatever they say is window dressing. I think they’re aware of the problems caused by long-time ZIRP, and they’re trying to edge away from it.

    • DUGTRUX says:

      Agood gage of economy is “flat bed trucking”. That area of the biz is where all the steel, construction supplies and newly manufactured heavy equipment is shipped. When the flat bedders are down that tells you something. The other areas of trucking ,(van and reefer) always have some volume clothing food ect..

    • hidflect says:

      Yellin’ Yellen knows she gets 5x more effect shaking her rolled up newspaper than she ever will actually smacking the dog with it. Every time she opens her mouth gold drops $20. Let’s call her bluff. Bring it on, Madame. Show us the awesome power of your 0.25% rise.

      • d says:

        “Yellin’ Yellen knows she gets 5x more effect shaking her rolled up newspaper than she ever will actually smacking the dog with it. ”

        This is what Central bankers get paid for, some of them like her, Greenspan, and Carney, are very good at jawboning rates and values around.

        Jawboning, is much cheaper, and easier to reverse, than fixed action.

  5. Ptb says:

    Just made my bimonthly trip from AZ to CA. I10 and I40 …noticeably less truck traffic than usual. I’d say at least 30% less.

    • Wolf Richter says:

      Julian, any of you truckers, trucking company owners, dispatchers, other insiders…. What’s the feel on the inside now, during peak shipping season?

    • Petunia says:

      They are reporting that chickens are some of the victims of the NC floods. It must be a lot of farms affected for the tv to report it. It was the same during the Louisiana floods, farmers were badly hurt. The bad weather is pointing to higher food prices, less supply, and less shipping traffic.

      • night-train says:

        Petunia: A big segment of NC’s agriculture is factory farming. And you are right, we may see a price spike especially for pork.

  6. Blackbox says:

    There has been a hoard of BNSF train engines parked in the middle of Oklahoma City along I235 for months. I haven’t stopped to count but it’s got to be at least 50+

    • OutLookingIn says:

      Those locomotives started showing up in February and since then their numbers just increase. Evidence of parked (stored) rail rolling stock is mounting.
      Lumber rail cars form a seven mile long eye sore outside Acampo with possibly over 500 units sitting idle. Hopper cars are now beginning to pile up in Michigan, along the lake shore outside Muskegon.
      Talking with other railfanning enthusiasts, they have also noticed idled rolling stock being parked on sidings, that have not seen use in years.
      I guess the railroads are running out of parking space!

      • d says:

        Who are the big dealers in scrap freight cars in America.

        Worth looking into, has to happen with the overcapacity issues that are rising here.

  7. mikey says:

    Rail shipments of coal and oil going down is a good thing. Pipelines are much more effecient and natural gas is possibly less polluting.

  8. View from the gutter says:

    This is unrelated sorry but I wanted to mention it. I live in San Jose and I noticed for lease signs all over the place on a major tech office area.

    Now, I am in this area everyday and I just noticed it today. Possibly, I just noticed now because I had not been paying attention previously to the signs.

    But…I nonetheless find it strange to see so many office space for lease signs in such a highly desirable tech area.

    Is this a turning point or am I just noticing it?

    I am a native San Jose person and I remember how fast a tech graveyard can happen from the dotcom bust days.

    • Wolf Richter says:

      You’re probably not imagining it. I will have to wait until I get the Q3 data. But I already know office leasing activity in San Francisco has essentially ground to a halt in Q3.

      I should have some data in a few days, and I’ll write about it. I think you’re right. I think you’re seeing a turning point right before your eyes.

      • d says:

        Pleasure boats in the northern h are coming out for winter storage and maintenance now.

        If the cycles are consistent you will notice a lot less money being spent on those boats. Money isn’t just tight by the wrong side of the track’s today. We have noticed a lot of people who are still doing their annual maintenance are only doing minimum.

        The bigger west coast maintenance yards on the west coast are in the south but they will fill in more of your gaps. like truck’s they are Economic indicators.

        • Paulo says:

          A great many of them are now being refurbished and new builts here in BC due to the low Cdn dollar. I remember flying a few gazillionaires to see yachts for sale down around Vancouver the last time the dollar spread was so high. I often walk past a local shipyard when I am in town. Usually, I recognize the boats and names. A lot of them now are out of WA and are unfamiliar.

      • Ehawk says:

        Yeah. but the amount of new buildings that are being finished is ridiculous. so there’s a LOT of supply of retail and office space from South San Jose to Mountain View… is what I can see during my daily commute along the 101, 85, 87, and central express way via car or caltrain…

        I don’t see a turning point, because the amount of traffic is the worst I’ve seen since 1999.

  9. frederick says:

    I have a friend who owns a very sucessful kitchen and bath remodeling showroom in Huntington NY an expensive suburb of the city of NY with lots of Wall Street bankers around and she tells me she has noticed a dramatic drop in traffic as of late

  10. John Doyle says:

    Does anyone imagine this is going to ever turn around? Our whole civilization is tanking. These posts all point in the same direction and our finite world is showing us just how finite it is. Already our credit use is stealing from the future so if that keeps our future will be “nasty, brutish and short”

    • Wolf Richter says:

      I think you’re too pessimistic. There articles here are not talking about “our whole civilization” that is tanking. We’re talking about some financial and economic indicators that point at specific economic or business troubles. These issues are normal in the business cycle (though now this business cycle is bigger and riskier due to all the debt creation and monetization going on). But they aren’t going to impact “our whole civilization.”

    • Blackbox says:

      Much of this current downward slide is simply due to demographics of the world population, particularly the aging baby boomers. The rest seems to be a combination of greed, intervention, apathy, shifting values, extreme oversupply of goods and a debt ridden consumer base. The Demographic Cliff by Harry Dent Jr is an excellent read on cycles and demographics that drive much of this.

    • Kasadour says:

      I agree, things are tanking. Our economic predicament is probably at the point of no return right now.

      How the tanking economy will impact [the tanking] civilization, IMO, will depend on whether there will be long term (even a week is long term) disruptions in food distribution. Almost all of our food supply is trucked/shipped in. Ever heard of the 3000-mile ceasar salad? The grocery stores have about a 3-day supply of fresh food. If the chain of food distribution is interrupted due to a trucking/shipping collapse, we could see civilization as we know it turn ugly in very short order. We already know the potential exists for social unrest re: Charlotte, Baltimore, L.A., Fergeson, et cet.

  11. unit472 says:

    With the expanded Panama Canal in operation and with ocean container rates at or below cost I would assume some shipments are bypassing West Coast ports and heading straight for the Gulf of Mexico or East Coast ports.
    Same thing for autos. If you’ve got a boatload ( literally) of Japanese cars that once were offloaded in Seattle or Los Angeles and then carried by train to points east why not just head straight for Houston or New York?

  12. view from the gutter says:

    I just saw an interesting site today in San Jose. There is a huge luxury condo complex near completion next to an array of office buildings surrounded by “Office Space for Lease” signs. Is there something wrong with this sight?

    • hidflect says:

      Same thing happened in Japan around 1998 going forward. Office leasing crashed so hard the government had to impose bogus rules to prevent people turning it into residential space. All intended to protect large property owners, of course. Residential prices fell too but much more slowly.

  13. Julian the Apostate says:

    As I’ve observed before my company took a big drubbing in ’08 and have taken steps from being caught flat-footed again. They have closed several terminals, laid off a lot of office help, and gone to “recession proof” freight. This seems to be working, I have been busy most of the year. There are trade-offs of course, trips tend to be shorter than longer, and some days are really a meat grinder. The are on me all the time about eta’s and recently when I get a load with a little time on it that allows me to catch up with laundry and other chores, they badger me to give it up for something “hotter”. Unless they go to forced dispatch I turn those down. I haven’t heard the flatbed division guys complaining, and I am currently operating out of that terminal so I bump into them about once a month. They ride herd on fueling pretty tightly, but that’s usually not a problem. They had a problem for awhile requiring a fuel stop on the way to load, but that seems to have been fixed. We have won awards from three of our major shippers this year, so I guess it’s all working pretty well.

    • Edward E says:

      My company invented the repeated Robo-babbling messages about ETA and next available time. Hey Julian, something to tell you, avoid the Love’s in Kingman, AZ if possible, all I’ve ever gotten there was a fuel filter full of mud. Truck stops seem to have some owner-operators sitting around, debt slaves and company dwivas not so much. Got something going on at the moment, when time allows will try to get back…

  14. Miranda Gilman says:

    When oil came calling and the freight train industry saw their opportunity to make big money, they left lucrative contracts already in place unfulfilled. Many of these contracts had timeline commits to an end customer. When the freight train industry would not fulfill their long contracts in order for new bigger revenues, those long time customers needed to move their time sensitive shipments over the road. Now that the oil industry is dwindling, sure would be nice to have those steady decades old contracts back for the freight train industry… too late, any regrets???

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